Minecraft
Preparation
Lesson Narrative
Students uncover the hidden upfront fees of buying a home known as "closing costs." They will calculate Private Mortgage Insurance (PMI) penalties for low down payments and analyze origination fees, appraisal fees, and title insurance to understand why buying a house requires significantly more cash than just the down payment.
Learning Goals
• Calculate the cost of Private Mortgage Insurance (PMI) on a loan with less than 20% down.
• Evaluate the purpose of title insurance and origination fees.
• Estimate total cash-to-close requirements for a standard mortgage.
Student Facing Learning Goals
• Let's calculate the hidden fees of buying a house so we don't run out of cash on closing day.
Student Facing Learning Targets
• I can explain what closing costs are.
• I can calculate how much PMI costs every month.
• I understand why the bank charges an origination fee.
Required Academic Standards
National Jump$tart Standards:
• Planning and Money Management (Standard 1): Develop a plan for spending and saving.
Glossary Entries
Closing Costs: Fees paid at the end of a real estate transaction.
PMI (Private Mortgage Insurance): Insurance that protects the lender if the buyer stops paying, required when the down payment is under 20%.
Origination Fee: An upfront fee charged by a lender for processing a new loan application.
Title Insurance: Insurance that protects the lender and buyer against financial loss from defects in property title.
Lesson
Warm Up
5.4.1: The Missing Cash
Launch: Have students stand in randomized groups of 3 at vertical whiteboards. Present the prompt verbally or project it. Give them 4 minutes.
Synthesis: Select two groups to share. Establish that a 20% down payment is just the start; the legal and administrative process of buying a home costs thousands of extra dollars.
Student Facing Task
Student-Facing Task: You want to buy a $200,000 house. You saved exactly $40,000 for a 20% down payment. On the day you go to sign the papers, the bank says you are actually short by $6,000. What do you think that extra $6,000 is for?
Activity 1
5.4.2: The PMI Penalty
Launch: Keep students at whiteboards. Project PMI scenario. Give groups 8 minutes to calculate.
Synthesis: Have the class observe the boards. (Teacher Key: 1. 1% of $285k = $2,850. 2. $2,850 / 12 = $237.50/month. 3. Zero dollars go to the house). Explain that PMI does not protect the buyer; it protects the bank, but the buyer has to pay for it because they are high risk.
Student Facing Task
Student-Facing Task: If you put less than 20% down on a house, the bank forces you to pay PMI every month. You buy a $300,000 house but only put down 5% ($15,000). The bank charges you a 1% annual PMI fee on your loan amount ($285,000).
1. Calculate the annual cost of PMI (1% of $285,000).
2. Divide by 12 to find the monthly PMI fee.
3. How much of that PMI money goes toward paying off your actual house?
Activity 2
5.4.3: Itemizing the Closing Disclosure
Launch: Present closing cost list. Give whiteboard groups 10 mins.
Synthesis: Facilitate a class review. (Key: $6,000 origination, $2,000 title, $500 appraisal. Total fees = $8,500. Total cash to close = $15,000 down + $8,500 fees = $23,500). Emphasize that buyers must negotiate these fees.
Student Facing Task
Student-Facing Task: You are buying a $300,000 house with a 5% down payment ($15,000). The lender hands you a "Closing Disclosure" with these fees: 2% Origination Fee (based on the $300k price), $2,000 Title Insurance, and a $500 Appraisal Fee.
1. Calculate the total dollar amount of the closing costs.
2. Add your down payment to the closing costs. What is the total "Cash to Close" you must wire to the bank?
Lesson Synthesis
Lesson Synthesis (5 min)
Narrative: Bring the class back to their seats. Review the student-facing learning targets. Summarize: "Buying a house requires massive liquidity. If you only save for the down payment, you will legally lose the house at the closing table."
Cool Down
5.4.4: The 20% Rule
Narrative: This exit ticket serves as a formative assessment on PMI.
Teacher Rubric: Student must explain that waiting to save a 20% down payment eliminates the PMI requirement, saving them hundreds of dollars a month in useless fees that do not build equity.
Student Facing Task
Student-Facing Task: Mathematically, why is it highly recommended to wait until you have a full 20% down payment before buying a house? What specific financial penalty does that percentage help you avoid?